We forecast a fairly small rise in the 10-year US government bond yield by end-2015 despite a shift in Fed policy. We also think the BoE will raise rates later and more slowly than the US central bank, while both the ECB and the BoJ are likely to ease further. If so, Gilts, Bunds and JGBs should outperform Treasuries. Equities are likely to struggle in the US as the Fed becomes less accommodative. They should fare better in Europe because there is greater scope for profitability to rise, valuations are more attractive, and the outlook for monetary policy should buoy the dollar against both sterling and the euro. But the biggest gains may occur in Japan as the yen falls again.
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